Saturday, April 29, 2017

Nearing a Sell Signal

Last week, I pointed out that a combination of a BUY on the Indicator Scoreboard and high SKEW were likely to provide a large move up and it was followed by a 50 pt jump in the SPX, exceeding my expectation.  This week the SKEW remains high as the indicators are close to a SELL, so a top similar to June 2015 is likely by the Wed FOMC result.

The Indicator Scoreboard last week dropped to the -6.0 level, but a move to -8.0 matching the June and Dec 2015 levels is expected to signal a top.  It remains to be seen whether the next drop will produce a new BUY and possible higher high or low bearishness as has been seen in the gold stock sector and a weaker rally.

The Short Term Indicator (VXX $ volume and Smart Beta P/C) has moved down strongly and is likely to reach a SELL on a rally back to the SPX ATH.

Since the RUT last week broke out of a potential H&S pattern, I wanted to compare the sentiment for that index to the SPX using the 3x ETFs.  Higher levels of bearishness for the TZA/TNA compared to the SPXU/UPRO does support out performance for the RUT compared to the SPX.

Moving on to bonds (TNX), the rise in bearishness with rates last week does support a leveling out or even a move lower in rates.

Gold stocks (HUI) got the negative surprise I mentioned last week and still seems to be moving inversely to the TNX.  It's possible that a stabilization in rates may be setting up TA triangle formation for a bigger move up or down.  Sentiment points to the downside.

Conclusion.  Last week's volatility was to the upside but that may be ready to reverse.  Given the similarity in sentiment to the May-July 2015 period and the High Risk Composite SELL mentioned last week a top near SPX 2400 should produce a 3-4% short term correction over the next couple of weeks.

Weekly Trade Alert.  I am expecting an intra day move over SPX 2400 that should be shorted, so SHORT at SPX 2400 or better, STOP at 2415, with a target of 2300-20.  Updates @mrktsignals.

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